<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
_______
FORM 10-Q
QUARTERLY REPORT
_______
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
_______
For the quarter ended August 29, 1998
_______
REGISTRANT: CLARCOR Inc. (Delaware)
<PAGE> 2
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended August 29, 1998 Commission File Number 1-11024
CLARCOR Inc.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-0922490
- ------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2323 Sixth Street, P.O. Box 7007, Rockford, Illinois 61125
- ---------------------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 815-962-8867
------------
No Change
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
24,395,240 common shares outstanding
------------------------------------
Page 1 of 14
<PAGE> 3
Part I - Item 1
- ---------------
CLARCOR Inc.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands)
-------------
<TABLE>
<CAPTION>
August 29, November 30,
ASSETS 1998 1997
----------- -----------
(unaudited)
<S> <C> <C>
Current assets:
Cash and short-term cash investments $ 30,886 $ 30,324
Accounts receivable, less allowance for losses
of $2,381 for 1998 and $2,106 for 1997 66,450 62,387
Inventories:
Raw materials 18,597 19,980
Work in process 8,655 8,547
Finished products 34,606 29,755
----------- -----------
Total inventories 61,858 58,282
----------- -----------
Prepaid expenses 1,763 1,417
Other current assets 5,303 8,117
----------- -----------
Total current assets 166,260 160,527
----------- -----------
Plant assets, at cost 189,224 180,619
less accumulated depreciation (105,207) (97,714)
----------- -----------
84,017 82,905
----------- -----------
Excess of cost over fair value of assets acquired,
less accumulated amortization 21,237 15,777
Pension assets 15,972 13,897
Other noncurrent assets 14,367 9,413
----------- -----------
$ 301,853 $ 282,519
=========== ===========
LIABILITIES
Current liabilities:
Current portion of long-term debt $ 604 $ 1,140
Accounts payable 24,849 22,168
Income taxes 5,614 4,944
Accrued and other liabilities 27,286 25,985
----------- -----------
Total current liabilities 58,353 54,237
----------- -----------
Long-term debt, less current portion 36,713 37,656
Long-term pension liabilities 9,251 7,556
Other long-term liabilities 10,710 11,011
Minority interests 224 897
Contingencies
SHAREHOLDERS' EQUITY
Capital stock 24,395 16,162
Retained earnings 160,812 154,843
Other shareholders' equity 1,395 157
----------- -----------
186,602 171,162
----------- -----------
$ 301,853 $ 282,519
=========== ===========
</TABLE>
See Notes to Consolidated Condensed Financial Statements
Page 2 of 14
<PAGE> 4
CLARCOR Inc.
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Dollars in thousands except per share data)
(Unaudited)
---------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- -----------------------------
August 29, August 30, August 29, August 30,
1998 1997 1998 1997
------------ ----------- ------------- -----------
<S> <C> <C> <C> <C>
Net sales $ 110,058 $ 104,636 $ 315,110 $ 288,278
Cost of sales 75,360 72,525 216,788 201,793
------------ ----------- ------------- -----------
Gross profit 34,698 32,111 98,322 86,485
Selling and administrative expenses 21,680 18,576 62,999 53,737
Merger-related expenses - - - 2,972
------------ ----------- ------------- -----------
Operating profit 13,018 13,535 35,323 29,776
------------ ----------- ------------- -----------
Other income (expense):
Interest expense (588) (623) (1,766) (2,063)
Interest income 348 247 981 706
Gain on sale of marketable securities - - - 1,706
Other, net 1,112 (189) 698 (243)
------------ ----------- ------------- -----------
872 (565) (87) 106
------------ ----------- ------------- -----------
Earnings before income taxes and
minority interests 13,890 12,970 35,236 29,882
Provision for income taxes 5,154 4,848 13,112 11,634
------------ ----------- ------------- -----------
Earnings before minority interests 8,736 8,122 22,124 18,248
Minority interests in (earnings) loss of subsidiaries 33 (37) 12 (98)
------------ ----------- ------------- -----------
Net earnings $ 8,769 $ 8,085 $ 22,136 $ 18,150
============ =========== ============= ===========
Net earnings per common share *
Basic $ 0.36 $ 0.33 $ 0.91 $ 0.75
============ =========== ============= ===========
Diluted $ 0.35 $ 0.33 $ 0.89 $ 0.75
============ =========== ============= ===========
Average number of common shares outstanding *
Basic 24,435,749 24,216,525 24,366,254 24,100,431
============ =========== ============= ===========
Diluted 24,937,391 24,556,136 24,917,298 24,341,072
============ =========== ============= ===========
Dividends paid per share * $ 0.1100 $ 0.1083 $ 0.3300 $ 0.3250
============ =========== ============= ===========
</TABLE>
*Adjusted to reflect a three-for-two stock split effective April 24, 1998.
See Notes to Consolidated Condensed Financial Statements
Page 3 of 14
<PAGE> 5
CLARCOR Inc.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
---------
<TABLE>
<CAPTION>
Nine Months Ended
----------------------
August 29, August 30,
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 22,136 18,150
Depreciation and amortization 9,600 9,114
Gain on sale of marketable securities - (1,706)
Changes in assets and liabilities (5,886) (2,117)
Net gain on dispositions of plant assets (1,298) (136)
Other, net (12) (98)
--------- ---------
Net cash provided by operating activities 24,540 23,207
--------- ---------
Cash flows from investing activities:
Additions to plant assets (10,447) (7,524)
Business acquisitions, net of cash acquired (7,984) (796)
Investment in affiliate (523) (36)
Proceeds from sale of marketable securities - 3,322
Proceeds from note receivable 2,500 -
Dispositions of plant assets 2,160 408
--------- ---------
Net cash used in investing activities (14,294) (4,626)
--------- ---------
Cash flows from financing activities:
Borrowings under long-term debt - 1,000
Reduction of long-term debt (2,241) (13,739)
Purchases of treasury stock (1,135) -
Cash dividends paid (8,023) (7,616)
Other, net 1,758 1,255
--------- ---------
Net cash used in financing activities (9,641) (19,100)
--------- ---------
Net effect of exchange rate changes on cash (43) (80)
--------- ---------
Net change in cash and short-term cash investments 562 (599)
Cash and short-term cash investments,
beginning of period 30,324 18,827
--------- ---------
Cash and short-term cash investments,
end of period $ 30,886 $ 18,228
========= =========
Cash paid during the period for:
Interest $ 1,972 2,563
========= =========
Income taxes $ 11,044 10,300
========= =========
</TABLE>
See Notes to Consolidated Condensed Financial Statements
Page 4 of 14
<PAGE> 6
CLARCOR Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Data)
(Unaudited)
- --------------------------------------------------------------------------------
1. CONSOLIDATED FINANCIAL STATEMENTS
The November 30, 1997 consolidated balance sheet data was derived from
CLARCOR's year-end audited financial statements, but does not include all
disclosures required by generally accepted accounting principles. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted.
The consolidated condensed balance sheet as of August 29, 1998, the
consolidated condensed statements of earnings and the consolidated
condensed statements of cash flows for the periods ended August 29, 1998,
and August 30, 1997, have been prepared by the Company without audit. The
financial statements have been prepared on the same basis as those in the
Company's November 30, 1997 annual report to shareholders. In the opinion
of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position, results
of operations, and cash flows have been made. The results of operations
for the period ended August 29, 1998 are not necessarily indicative of the
operating results for the full year.
2. STOCK SPLIT AND EARNINGS PER SHARE
On March 24, 1998, the Company declared a three-for-two stock split in
the form of a 50% stock dividend distributable April 24, 1998 to
shareholders of record April 10, 1998. In connection therewith, the
Company transferred $8,145 from retained earnings to common stock,
representing the par value of additional shares issued. All share and per
share amounts for all periods presented have been adjusted to reflect the
stock split.
During the quarter ended February 28, 1998, the Company adopted
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
(EPS), which simplifies the calculation of earnings per share and requires
presentation of both basic and diluted earnings per share on the
Consolidated Condensed Statements of Earnings. Diluted earnings per share
reflects the impact of outstanding stock options if exercised during the
periods presented using the treasury stock method. The following table
provides a reconciliation of the numerators and denominators utilized in
the calculation of basic and diluted EPS.
Page 5 of 14
<PAGE> 7
CLARCOR Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Data)
(Unaudited) Continued
- --------------------------------------------------------------------------------
2. STOCK SPLIT AND EARNINGS PER SHARE (Continued)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
----------------------- -----------------------
August 29, August 30, August 29, August 30,
1998 1997 1998 1997
----------------------- -----------------------
<S> <C> <C> <C> <C>
Net Earnings (Numerator) $8,769 $8,085 $22,136 $18,150
Basic EPS:
Weighted average number of common
shares outstanding (denominator) 24,435,749 24,216,525 24,366,254 24,100,431
Basic per share amount $0.36 $0.33 $0.91 $0.75
Diluted EPS:
Weighted average number of common
shares outstanding 24,435,749 24,216,525 24,366,254 24,100,431
Effect of dilutive securities due to
stock options 501,642 339,611 551,044 240,641
---------- ---------- ---------- ----------
Diluted weighted average number
of common shares outstanding
(denominator) 24,937,391 24,556,136 24,917,298 24,341,072
Diluted per share amount $0.35 $0.33 $0.89 $0.75
</TABLE>
The following options were not included in the computation of diluted
earnings per share as the options' exercise prices were greater than the
average market price of the common shares during the respective quarter and
year-to-date periods:
<TABLE>
<CAPTION>
Weighted
Average Exercise
Options Price
------- ----------------
<S> <C> <C>
Third quarter ended August 29, 1998 508,864 $19.86
Nine months ended August 29, 1998 74,239 $21.49
</TABLE>
3. BUSINESS COMBINATIONS AND MERGER-RELATED COSTS
On February 20, 1998, the Company purchased Air Technologies, Inc.
(ATI), an Ottawa, Kansas manufacturer of air filtration products for cash.
ATI is part of Airguard Industries Inc., a subsidiary of the Company.
During the third quarter of 1998, the Company purchased a small Airguard
distributor for cash. These acquisitions did not have a significant impact
on the results of the Company.
Page 6 of 14
<PAGE> 8
CLARCOR Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Data)
(Unaudited) Continued
- --------------------------------------------------------------------------------
3. BUSINESS COMBINATIONS AND MERGER-RELATED COSTS (Continued)
On February 28, 1997, the Company completed its acquisition of United
Air Specialists, Inc. (UAS), a manufacturer of air quality equipment based
in Cincinnati, Ohio. The Company issued 1,622,612 shares (on a post-split
basis) of its common stock in exchange for all the shares of UAS stock.
Additional shares of its common stock (approximately 191,385 shares on a
post-split basis) will be issued upon exercise of UAS options. The
transaction has been structured as a statutory merger accounted for as a
pooling of interests. As a result of the acquisition, UAS became a
subsidiary of the Company. During the first quarter of 1997, the Company
incurred a one-time pre-tax charge of $2,972 ($2,390 net of tax) covering
the costs of the merger including legal and professional fees, non-compete
agreements, and costs to integrate the businesses of the two companies.
4. TREASURY STOCK TRANSACTIONS
During the quarter ended August 29, 1998, the Company purchased and
retired 65,000 shares of common stock held in treasury. All such shares
resumed the status of authorized and unissued shares of common stock of the
Company. Subsequent to the end of the third quarter, the Company purchased
and retired an additional 463,691 shares.
5. SEGMENT DATA
The Company operates in three principal product segments: Engine/Mobile
Filtration, Industrial/Environmental Filtration, and Consumer Packaging.
The segment data for the quarter and nine-month periods ended August 29,
1998 and August 30, 1997, respectively, are shown below. Net sales
represent sales to unaffiliated customers, as reported in the consolidated
condensed statements of earnings. Intersegment sales were not material.
<TABLE>
<CAPTION>
1998 1997
------------------------------ ----------------------------
Quarter Ended Nine Quarter Ended Nine
(Dollars in Thousands) August 29 Months August 30 Months
------------------------------ ----------------------------
<S> <C> <C> <C> <C>
NET SALES BY SEGMENT:
Engine/Mobile Filtration $ 56,936 $166,477 $ 54,247 $154,126
Industrial/Environmental Filtration 35,202 99,265 29,250 81,229
Consumer Products 17,920 49,368 21,139 52,923
------------------------ ----------------------
$110,058 $315,110 $104,636 $288,278
======================== ======================
OPERATING PROFIT BY SEGMENT:
Engine/Mobile Filtration $ 9,990 $ 27,618 $ 9,528 $ 24,875
Industrial/Environmental Filtration 1,996 3,866 1,435 2,421
Consumer Products 1,032 3,839 2,572 5,452
------------------------ ----------------------
13,018 35,323 13,535 32,748
Merger-related expenses - - - (2,972)
------------------------ ----------------------
$ 13,018 $ 35,323 $ 13,535 $ 29,776
======================== ======================
</TABLE>
Page 7 of 14
<PAGE> 9
Part II - Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On March 24, 1998, CLARCOR's Board of Directors declared a three-for-two stock
split of its common shares in the form of a 50% stock dividend effective April
24, 1998. All appropriate amounts have been adjusted to reflect the stock
split. On February 28, 1997, the Company completed the merger with United Air
Specialists, Inc. (UAS) which was accounted for as a pooling of interests, and
as a result, all periods presented include UAS.
RESULTS OF OPERATIONS
THIRD QUARTER 1998 COMPARED WITH THIRD QUARTER OF 1997.
CLARCOR's results of operations in the third quarter of 1998 reflect higher
sales levels and improved operating profit from the Company's two filtration
segments, but lower sales and operating profit from its Consumer Packaging
segment compared to the 1997 third quarter.
Net sales of $110,058,000 increased 5.2% over the 1997 quarter. The
Engine/Mobile Filtration segment recorded increased sales of 5.0% over the 1997
quarter as a result of higher domestic sales of heavy-duty, light-duty and
railroad filtration products although international sales were lower in third
quarter, 1998. The Industrial/Environmental Filtration segment recorded a
20.3% increase in sales over the 1997 quarter as a result of increased domestic
shipments which were partially offset by lower international sales. The 1998
quarter also included sales from the acquisition of Air Technologies, Inc.
(ATI) in February 1998. Excluding the third quarter sales from ATI, the
segment's sales increased approximately 12%. Net sales for the Consumer
Packaging segment were 15.2% lower primarily as a result of reduced sales of
promotional products. In addition, the 1997 quarter included sales from the
Tube Division which was sold during the fourth quarter, 1997. Excluding the
1997 tube sales, sales from the segment's ongoing operations decreased
approximately 7.9% from 1997.
Operating profit for the third quarter 1998 decreased 3.8% from the 1997
quarter and resulted from increased profit levels from the filtration segments
offset by lower profit from the Consumer Packaging segment. Competitive
pricing pressure in each segment continued to be offset by cost reductions and
productivity improvements. The Engine/Mobile Filtration segment's operating
profit increased 4.8% on the strength of higher sales levels and productivity
increases but was negatively impacted by competitive pricing pressures. The
segment's operating margin of 17.5% for the third quarter 1998 compared to
17.6% recorded in the same quarter of 1997. Substantially improved operating
profit by the Industrial/Environment Filtration segment resulted from
significant increases in sales for the quarter and continued improvement in
manufacturing productivity at each location. Operating profit of $1,032,000
from the Consumer Packaging segment was significantly lower than the 1997
quarter due to lower sales, primarily of promotional products, and a $1,600,000
charge during the quarter due to a customer bankruptcy. During the second
quarter of 1998, approximately $500,000 was reserved due to anticipated
collection problems associated with this promotional customer.
Net other income of $872,000 included a $1,300,000 gain on the third quarter
1998 sale of a building that formerly housed the Consumer Packaging segment's
Tube Division, which was sold
Page 8 of 14
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
in 1997. Excluding the third quarter 1998 gain, net other expense totaled
$428,000 which compares to $565,000 recorded in the same quarter of 1997. The
reduced net other expense for 1998 resulted principally from lower interest
expense and higher interest income.
Earnings before income taxes and minority interests increased to $13,890,000
from $12,970,000 recorded in the 1997 quarter primarily as a result of the
$517,000 decrease in operating profit offset by the $1,437,000 increase in net
other income.
The provision for income taxes increased to $5,154,000 in 1998 and the
effective tax rate was 37.1% and compares to 37.4% recorded in the 1997
quarter.
Net earnings for the quarter of $8,769,000 resulted in basic earnings per share
of $0.36 compared to $0.33 in 1997, an increase of 9.1%, and diluted earnings
per share increased 6.1% to $0.35 compared to $0.33 in the 1997 quarter.
NINE MONTHS 1998 COMPARED TO NINE MONTHS OF 1997.
Net sales of $315,110,000 increased 9.3% from $288,278,000 reported for the
first nine months of fiscal 1997. The Engine/Mobile Filtration segment
reported increased sales of 8.0% to $166,477,000 from $154,126,000 recorded in
1997. This increase resulted from growth in heavy-duty and light-duty domestic
aftermarket sales and increased sales of filtration products for the railroad
industry.
The Company's Industrial/Environmental Filtration segment recorded increased
sales of 22.2% for 1998 over 1997. This sales increase included a significant
sale in the first quarter of 1998 of gas turbine filtration equipment and
filters to an overseas buyer and higher domestic sales for both Airguard and
UAS compared to the nine month 1997 results. Sales from ATI are also included
in 1998 from the acquisition date of February 20, 1998.
The Consumer Packaging segment reported a 6.7% decrease in sales for the 1998
nine-month period; however, the 1997 period included approximately $5,200,000
in sales from the segment's Tube Division which was sold in November 1997.
Excluding the sales from the Tube Division in 1997, the segment's 1998 sales
increased 3.4% for the nine-month period as a result of increased promotional
sales early in 1998.
Operating profit for the 1998 nine-month period was $35,323,000 that compares
to $29,776,000 in 1997. The 1997 operating profit was reduced by
merger-related costs of $2,972,000. Excluding the merger costs recorded in
1997, operating profit increased 7.9% to $35,323,000 in 1998 from $32,748,000
in 1997. Operating profit was 11.2% of net sales in 1998 compared to 11.4%,
excluding the merger-related costs, in 1997. The strength of the U.S. dollar
had a limited impact on operating profit from foreign sales in 1998. Foreign
sales totaled approximately 17% of total net sales with the majority of those
sales denominated in U.S. dollars.
The Engine/Mobile Filtration segment recorded an operating profit increase of
11.0% in the 1998 nine-month period as a result of higher sales volumes offset
by competitive pricing pressures, continued productivity improvements, and
improved operating results for the segment's light-duty
Page 9 of 14
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
product line from the 1997 nine-month period. The Industrial/Environmental
Filtration segment reported an increase of $1,445,000, or 59.7%, in operating
profit in 1998 due to increased sales volumes and productivity improvements
from both of the segment's operating companies. The Consumer Packaging segment
reported significantly lower operating profit due to lower third quarter sales,
a significant charge of approximately $2,100,000 due a customer bankruptcy, and
the 1997 profit from the Tube Division which did not recur in 1998.
Net other expense of $87,000 in 1998 included the third quarter gain of
$1,300,000 and reduced interest expense and higher interest income than
recorded in 1997 as a result of lower debt and higher cash balances during the
1998 nine-month period. The first quarter of 1997 also included a $1,706,000
gain from the sale of shares held by the Company in G.U.D. Holdings Ltd. (GUD).
Earnings before income taxes and minority interests for the first nine months
of 1998 totaled $35,236,000, up from $29,882,000 in the comparable period last
year.
The provision for income taxes in 1998 was $13,112,000, an effective rate of
37.2%. Certain of the merger-related costs recorded in 1997 were not fully
deductible for tax purposes which created an unusually high effective tax rate
of 38.9% of pre-tax earnings for the nine-month 1997 period.
Net earnings in the 1998 period were $22,136,000, or $0.91 basic earnings per
share and $0.89 per share on a diluted basis. The 1997 net earnings for the
nine-month period were $18,150,000, or $0.75 basic and diluted earnings per
share.
Average shares outstanding were 24,366,254 and diluted average shares
outstanding were 24,917,298 at the end of nine months of 1998. The Company
repurchased and retired 65,000 shares during the 1998 third quarter.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities for the nine months 1998 totaled
$24,540,000 and included increased net earnings offset by increased investment
in assets, net of liabilities, compared to the first nine months of 1997. Cash
flows used in investing activities increased in the 1998 nine-month period due
to $7,984,000 used primarily to acquire Air Technologies, Inc. on February 20,
1998 and an Airguard distributor during the 1998 third quarter, and higher
plant asset additions which totaled $10,447,000. The 1998 period also included
$2,500,000 received as payment on a note receivable and the 1997 period
included the proceeds of $3,322,000 received from the sale of the GUD shares.
Cash flows used by financing activities of $9,641,000 in 1998 included payments
on long-term debt of $2,241,000, cash dividend payments of $8,023,000, and
$1,135,000 for stock repurchases. The 1997 debt payments of $13,739,000 were
higher due to the required payment schedules and payments on certain high cost
debt assumed in the UAS merger. The additional borrowing of $1,000,000, which
occurred in first quarter 1997, was related to UAS' use of a line of credit
prior to the merger.
CLARCOR's current operations continue to generate adequate cash to fund
operating needs, pay dividends, and provide for the repayment of the Company's
long-term debt. Sufficient lines of credit remain available to fund current
operating needs. Capital expenditures of approximately
Page 10 of 14
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
$19,000,000 for fiscal year 1998 will be greater than 1997 as a result of an
expansion to the Kearney, Nebraska facility. Fourth quarter 1998 capital
expenditures will also include new lithography equipment for the Consumer
Packaging segment and investments to increase manufacturing productivity at
Baldwin and Airguard.
The Company's financial position at the end of the third quarter reflected
increased assets of $19,334,000 to $301,853,000 from fiscal year-end 1997.
Cash and short-term investments totaled $30,886,000 at the end of the quarter,
an increase of $562,000 from year-end. The current ratio at the end of the
third quarter was 2.8:1, compared to 3.0:1 at the end of fiscal 1997. The
current year ratio of long-term debt to total capitalization was 16.4% compared
to 18.0%, the level at year-end 1997.
At the end of the third quarter, CLARCOR had 24,395,240 shares of common stock
outstanding which reflected the repurchase and retirement of 65,000 shares
during the third quarter of 1998. Subsequent to the end of the 1998 third
quarter, additional shares of common stock were repurchased and retired.
During the nine-month period, 216,637 shares were issued related to the
Company's stock incentive plans.
YEAR 2000
For several years the Company has been reviewing Year 2000 issues related to
the impact on its computer systems and operating facilities. Management has
assigned internal project teams to review all computer operated machinery and
related software to assure that key financial, information and operating
systems have been assessed. Key suppliers and outside parties that may also
have Year 2000 issues which could impact the Company have been contacted and
have been asked to verify their Year 2000 readiness. The Company is testing
interaction with such outside party systems where appropriate. In addition,
the Company has assessed products sold by the Company and believes that there
is no material exposure to contingencies related to the Year 2000 issue;
however, additional testing of date-sensitive components will continue
throughout 1999. Management believes that all key areas which may be impacted
by the Year 2000 date have been assessed and remediation plans have been
developed. No significant issues have been identified and the Company has not
incurred any material costs related to the assessment of, and preliminary
efforts in connection with, its Year 2000 issues.
Remediation plans have been developed to address systems modifications and some
of these modifications have already been implemented and tested. The end of
the second quarter of 1999 has been set by the Company as a target date for
assuring that all information processing and operating systems have been fully
tested and remediation plans implemented. Where outside suppliers are not able
to verify their readiness by that date, backup suppliers will be identified.
The Company is developing contingency plans that will address the Company's
exposure to any material failure as a result of noncompliance by third parties;
however, with respect to certain vendors, particularly utility vendors,
alternative suppliers may not be readily available. Management believes that
the Company is devoting the necessary resources to identify and resolve
significant Year 2000 issues and to minimize the risk of noncompliance in a
timely manner.
Page 11 of 14
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
Based on the assessment and remediation plans implemented at this time, the
costs of addressing compliance are not expected to have a material adverse
impact on the Company's financial position, results of operations or cash flows
in the future. However, the Year 2000 problem is pervasive and complex as
virtually every computer operation may be affected in some way. Consequently,
no assurance can be given that Year 2000 compliance can be achieved without
costs that might have a material adverse effect upon the Company's business,
financial condition, results of operation, and business prospects.
OUTLOOK
The Company expects to report a record year in both sales and profits in 1998.
As reported earlier in 1998, the softening in export sales to both Europe and
Asia continued throughout the third quarter. Though there are indications of a
slowdown in the domestic economy and overseas, most of the Company's
Engine/Mobile Filtration sales are to the heavy-duty aftermarket, which tends
to be more stable and less impacted by economic cycles. As a result, the
concentration of sales in filtration aftermarkets and limited exposure in Asia
provides the Company with a stable base of business. Investments at each of
the Company's segments during 1998 in new product development should positively
impact sales and profits in 1999. For example, in August 1998, a new dust
collector called Supra-Blast was introduced by the Company's United Air
Specialists subsidiary. This new product is technically improved, more user
friendly and will open additional opportunities in the international
marketplace. Although potential acquisition candidates continue to be
evaluated, the Company remains cautious and is sensitive to the consequences of
paying too much for unproven future results.
FORWARD-LOOKING INFORMATION IS SUBJECT TO RISK AND UNCERTAINTY
Certain statements quoted in the body of this report, the Year 2000 discussion
above, and statements in the "Outlook" section of this report are
forward-looking. These statements involve risk and uncertainty. Actual future
results and trends may differ materially depending on a variety of factors,
including the volume and timing of orders received during the quarter, the mix
of changes in distribution channels through which the Company's products are
sold, the timing and acceptance of new products and product enhancements by the
Company or its competitors, changes in pricing, product life cycles, purchasing
patterns of distributors and customers, competitive conditions in the industry,
business cycles affecting the markets in which the Company's products are sold,
the effectiveness of plant conversions and productivity improvement programs,
the management of both growth and acquisitions, third-party compliance with
Year 2000 readiness, the Company's internal Year 2000 readiness, extraordinary
events, such as litigation or acquisitions, including related charges, and
economic conditions generally or in various geographic areas. All of the
foregoing matters are difficult to forecast. The future results of the Company
may fluctuate as a result of these and the other risk factors detailed from
time to time in the Company's Securities and Exchange Commission reports.
Due to the foregoing items, it is possible that, in some future quarters, the
Company's operating results will be below the expectation of some stock market
analysts and investors. In such event, the price of the CLARCOR common stock
could be materially adversely affected.
Page 12 of 14
<PAGE> 14
Part II - Other Information
Item 6a - Exhibit (11), Computations of Per Share Earnings are presented
in Note 2 to the financial statements.
Item 6b - No Form 8-K was filed during the quarter ended August 29, 1998.
Page 13 of 14
<PAGE> 15
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CLARCOR INC.
(Registrant)
October 12, 1998 By /s/ Bruce A. Klein
- ---------------------- ----------------------------------------
(Date) Bruce A. Klein, Vice President - Finance
and Chief Financial Officer
Page 14 of 14
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